Barber v. Kimbrell's, Inc.

Decision Date29 November 1976
Docket NumberNo. C-C-74-95.,C-C-74-95.
Citation424 F. Supp. 42
CourtU.S. District Court — Western District of North Carolina
PartiesPolly Ann BARBER, on behalf of herself and all other persons similarly situated, Plaintiff, v. KIMBRELL'S, INC., and Furniture Distributors, Inc., Defendants.

Donald S. Gillespie, Jr., Legal Aid Society of Mecklenburg County, and G. Miller Jordan, Charlotte, N. C., for plaintiff.

Fenton T. Erwin, Jr., Lindsey, Schrimsher, Erwin, Bernhardt & Hewitt, Charlotte, N. C., for defendants.

MEMORANDUM OF DECISION AND JUDGMENT

McMILLAN, District Judge.

PRELIMINARY STATEMENT

Polly Ann Barber filed this action on May 3, 1974, seeking civil penalties under the Consumer Credit Protection Act ("Truth-in-Lending Act"), 15 U.S.C. § 1601, et seq. On June 11, 1975, a class was certified under Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure, consisting of the plaintiff and persons who, between July 16, 1973, and May 3, 1974, had entered into consumer credit transactions at the downtown Charlotte Kimbrell's furniture store. Class notice was given; some opted out; the class numbers approximately 740 members. Furniture Distributors, Inc., also a North Carolina corporation, was added as a defendant on April 15, 1975; discovery proceeded; motions of defendant Furniture Distributors, Inc. for summary judgment were made and denied; and the case was heard on June 7, 1976, on cross-motions of the various parties for summary judgment.

The court finds that the defendants have violated the "Truth-in-Lending Act," and are liable to the individual plaintiff and to the members of the class she represents.

PURPOSES OF THE TRUTH-IN-LENDING ACT

The Truth-in-Lending Act was adopted in 1968. It does not regulate interest rates. Instead, its purpose is to require that lenders provide consumers with information, clearly and understandably stated, so that they can determine what they are paying for the credit extended to them, and so that they can compare costs of credit available from various sources and shop around intelligently for the best terms. It requires that certain specific information be given in the documents covering the transaction, and it provides penalties for failure to disclose the necessary information. See 15 U.S.C. § 1601 and annotations. The decided cases talk in terms of the duty to "`assure a meaningful disclosure of credit terms' to consumers," Gardner, et al. v. Board of Governors of Federal Reserve System, et al., 150 U.S.App.D.C. 329, 464 F.2d 838, 841 (1972), or "to protect consumers by providing them with accurate information so they could shop for credit," Bostwick v. Cohen, 319 F.Supp. 875, 877 (N.D.Ohio 1970). As the Fourth Circuit Court of Appeals stated in White v. Arlen Realty Co., 540 F.2d 645 (4th Cir. 1975), the Act is intended to prevent the public from misleading and confusing credit disclosures and to insure full, complete, accurate and uniform consumer credit disclosure, to make possible informed comparison shopping for credit.

The Supreme Court of the United States said in Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973):

". . . Consumers remain remarkably ignorant of the nature of their credit obligations and of the cost of deferring payment. Because of the divergent . . . practices by which consumers were informed of the terms of the credit extended to them, many consumers were prevented from shopping for the best terms available . . . Such blind economic activity is inconsistent with the efficient functioning of a free economic system such as ours, whose ability to provide desired material at the lowest cost is dependent on the asserted preferences and informed choices of consumers. The Truth-in-Lending Act was designed to remedy the problems which had developed." Pp. 363-364, 93 S.Ct. pp. 1657-1658.
JURISDICTION

The court has jurisdiction over the parties and the subject matter under 15 U.S.C. § 1640(e); the suit was brought within the time limitation; the case is at issue and is properly before the court on the pending motions; the class has been properly notified; counsel have been fully heard in argument and in brief; and the case is ready for decision.

THE FACTS ABOUT POLLY ANN BARBER'S CASE

On July 16, 1973, the named plaintiff, Polly Ann Barber, entered into a retail installment contract at the downtown Charlotte Kimbrell's furniture store, for the purchase of a green velvet sofa bed, a four-piece walnut bedroom suite and a box spring and mattress. At the time she owed Kimbrell's $65.00 from a previous credit purchase which had been subjected to a previous finance charge. The old balance was added to the price of the new purchases in an "add on" transaction and the old and the new balance were consolidated into one "PURCHASE MONEY SECURITY AGREEMENT," to be retired by the payment of twelve equal monthly installments. Ms. Barber executed the agreement.

A photocopy of the instrument ("PURCHASE MONEY SECURITY AGREEMENT") is attached and is the next page of this opinion. It bears the legend "APPENDIX `A'" at the bottom.

APPENDIX A

THE DEFENDANTS

The defendant Kimbrell's, Inc., which sold the furniture to the plaintiff, is a North Carolina corporation. Kimbrell's, Inc. is a wholly owned subsidiary of Furniture Distributors, Inc., also a North Carolina corporation. Furniture Distributors, Inc., through some thirty wholly owned corporate subsidiaries, operates a chain of forty-eight Kimbrell's furniture stores in North Carolina, South Carolina and Georgia. Kimbrell's, Inc. and Furniture Distributors, Inc. share a common headquarters in the Kimbrell's executive offices at 4524 South Boulevard, Charlotte, North Carolina.

The officers and directors of Furniture Distributors, Inc. and all of its subsidiaries are substantially the same. The exceptions are inconsequential (for example: W. C. Kimbrell is president and J. A. Kimbrell is vice president of the North Carolina based corporations, whereas in the South Carolina based corporations the roles of these two men are reversed).

The officers and directors of Kimbrell's, Inc. and of the parent company, Furniture Distributors, Inc., participated in the development and preparation of the standard contract form (APPENDIX "A") and distributed the form for use in Kimbrell's, Inc. and each of the other forty-seven retail stores in the Kimbrell's chain.

From 1969 to March, 1975, each of the forty-eight individual retail furniture stores, in all extensions of credit to customers, used essentially the same contract form which is found in APPENDIX "A". The only difference among the contract forms was the name and address of the local store printed in the upper left corner.

In March, 1975, after this suit was filed, the form was altered in one respect — the term "Total Time Balance" was crossed out and replaced with the term "Total of Payments." The altered form was uniformly used after March, 1975, in all the retail outlets.

Kimbrell's, Inc. regularly extends or offers to extend credit to its retail customers (such as plaintiff) who purchase furniture.

Furniture Distributors, Inc. has knowledge of the credit terms for all the consumer credit sales by its subsidiaries in that each consummated contract is sent to the Kimbrell's executive office at 4524 South Boulevard, Charlotte, North Carolina, for review.

The transactions between plaintiff and the class she represents on the one hand, and the defendants on the other, are not exempted from coverage by the Truth-in-Lending Act, 15 U.S.C. § 1603.

Kimbrell's, Inc. is a "creditor" within the meaning of 15 U.S.C. § 1602(f) and Regulation Z, § 226.2(s) (amended October 28, 1975, formerly subsection (m)), by its own admission, in that it regularly extends consumer credit or offers to extend credit to its retail customers.

Furniture Distributors, Inc. is a "creditor" the same as its wholly-owned subsidiary, Kimbrell's, Inc., because of the overlapping corporate officers, directors and offices, and its domination of its subsidiary's extension of credit. Particularly, Furniture Distributors, Inc. is inextricably tied in with its subsidiaries in the way it has prepared the form contract and insured its use in all credit dealings with customers. Thus, Furniture Distributors, Inc. is an "extender of credit" the same as Kimbrell's, Inc. Zale Corp. v. FTC, 473 F.2d 1317 (5th Cir. 1973); NLRB v. Deena Artware, 361 U.S. 398, 80 S.Ct. 441, 4 L.Ed.2d 400 (1960); Pilot Title Insurance Company v. Northwestern Bank, 11 N.C.App. 444, 181 S.E.2d 799 (1971).

In addition, Furniture Distributors, Inc. is a creditor or an "arranger of credit" under the definition in Regulation Z, § 226.2(h), in that it has knowledge of the credit terms of the consumer transactions of all its subsidiaries and has participated extensively in the preparation of the form contract documents. Whitman v. Connecticut Bank & Trust Company, 400 F.Supp. 1341 (D.Conn. 1975).

THE VIOLATIONS OF THE TRUTH-IN-LENDING ACT

It is necessary to look at the contract (APPENDIX "A") in order to understand this decision.

The form contract, or "PURCHASE MONEY SECURITY AGREEMENT," when it is used to cover financing of new purchases consolidated with refinancing of previous credit purchases, makes disclosures in two parallel vertical columns. The information cannot be derived by reading straight down either column. The computations and disclosures require the reader to switch back and forth between the two columns of figures. The result is a confusing situation which is not yet thoroughly understandable to me despite a considerable period of study.

In a number of particulars the evidence demonstrates that the defendants have violated the Truth-in-Lending Act. These violations include:

A. Misleading labels instead of precise terminology.

B. Inclusion of additional information which obscures required information.

C. Failure to disclose components of finance charges.

D...

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